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2.3 Turkish central bank chops policy rate (for “central bank” read “Erdogan”)
The Turkish central bank’s monetary policy committee (MPC) on July 25 cut its policy rate by a more than expected 425 bp to 19.75%, the biggest such move seen in nearly two decades. The national lender announced the decrease, drawn up to enable a dash for growth in a recession-hit economy, on July 25 in a press release. At the same time, the MPC relayed that it would maintain a cautious monetary stance to support disinflation.
“I love that they cut 425bps and they are maintaining the cautious stance!” Timothy Ash of BlueBay Asset Management said in an emailed note to investors. It is not the first time that the Turkish government—and yes, let’s not beat about the bush any longer, it is the government that is cutting the rates, turning Donald Trump from his usual orange to green with envy—has set out to fool everyone.
It’s all a jape. It’s all a jape, no-one in their right mind can believe the Erdogan administration’s economic logic—or for that matter, figures—anymore, but there are plenty of low ballers out there ready to turn a blind eye to the poisonous habits that have set in during the post-2008 financial crisis era as they pick up the country’s eurobonds and companies on the cheap and stocks at appetising ratios. The wily Erdogan always manages to offer everyone something—particularly fellow populists such as Trump, never not on the lookout for a poll boost from, for instance, freeing an imprisoned pastor going spare, or Boris Johnson, now appointed japester-in-chief as UK PM. To be sure, there were some arguments in favour of a cautious rate cut—the Turkish lira (TRY) boasts one of the highest implied returns in the world when adjusted for inflation and that, along with the prospect of monetary easing by the Fed and European Central Bank, is boosting the nation’s assets, with Turkey’s average local-currency bond yields at 16%, the highest in Bloomberg Barclays’ emerging-market index after Argentina—but for crikey’s sake, Erdogan is a president who just fired his central bank chief for not doing his bidding and then brazenly stated that the new guy in charge would spend the rest of this year on the easing curve. How could he know that if the central bank even retained a scintilla of independence? But be careful what you say if you have ‘proceeds’ at stake, for he and his praetorian guard are quick to take offence (all part of the routine, doncha know).
“The accusations against the country range from President Recep Tayyip Erdogan’s alleged authoritarianism at home to undermining Nato abroad. These charges are baseless,” Erdogan’s spokesman Ibrahim Kalin—said to have lost ground to newly-appointed communications director Fahrettin Altun in Turkey’s ‘Game of Thrones’— wrote as if he were truly affronted in an op-ed entitled “No, Turkey Has Not Abandoned the West” for Bloomberg. His piece came in response to an orientalist fable headlined “Turkey Has Abandoned the West. Good Riddance” put out by Bloomberg’s “Editorial Board”.
More sober analysis. Getting back to some more sober analysis (although, truly, only the inebriated can puzzle out Turkey as it stands right now), the MPC breathed: “Inflation is likely to materialize slightly below the projections of the April Inflation Report by the end of the year.” In April, the central bank left its end-2019 consumer price index (CPI) inflation forecast unchanged at 14.6%. However, Jason Tuvey of Capital Economics, in a research note entitled "Erdogan gets his way with aggressive rate cut", justifiably warned: “Further aggressive easing lies in store over the coming months. But this is likely to cause the lira to weaken and inflation to rise again. The central bank will probably have to reverse course before too long.”
Let’s keep being rude. But let’s keep being rude about Turkey, now that economic officials there as a matter of course think it is just fine to insult the rational observer’s intelligence. The MPC seems confident that statistical institute TUIK will keep cutting the official inflation figures, allowing for policy
10 TURKEY Country Report August 2019 www.intellinews.com